Monday, November 19, 2007

MORE than RM6 billion (S$2.58 billion) from the Middle East has been invested in Malaysian property in the past two years

MORE than RM6 billion (S$2.58 billion) from the Middle East has been invested in Malaysian property in the past two years - and more is set to follow. Analysts say that Islamic funds will continue to flow into Malaysia’s property sector, drawn by the country’s reasonable economic growth, the strengthening ringgit and low capital values.

RHB Islamic Bank chairman Vaseehar Hassan believes that most of the money will go into property and infrastructure projects slated for implementation under the Ninth Malaysia Plan.

Big ticket projects on the drawing board or coming on stream - like the Iskandar Development Region (IDR) in Johor and Penang Global City - are likely to arouse Middle Eastern interest.

The Klang Valley has raked in almost RM2.4 billion of Arab funds, but now lags the RM4.2 billion committed by four Middle Eastern groups to the IDR.

However, the deals to develop various lifestyle and financial clusters in the IDR are conditional. The conditions have not been publicly revealed but are believed to include having physical infrastructure put in place before Mubadala Development, Millennium Development, Aldar Properties PJSC, and Kuwait Finance House (KFH) proceed with their plans.

Leading the charge is KFH, which this week said that it intends to put up a building taller than the 452-metre Petronas Twin Towers. Its managing director Salman Younis told The Edge Financial Daily that the project has been approved and will be constructed in a joint venture with the property arm of a local bank. He declined to elaborate but said that work will start next year.

Middle East interest could also surface in E&O Property’s multi-billion ringgit Sri Tanjung Pinang in Penang - a two-phase multi-island and headland development spanning 15 years and involving 980 acres of land reclamation.

Arab interest is relatively small in the first phase, with Al-Salam Bank a joint venture partner in developing a number of seafront bungalows worth RM200 million.

But in the second phase E&O Property plans to reclaim land for two or three man-made islands linked by a bridge.

Real estate players have said that the developer of The Palm Jumeirah in Dubai, Nakheel Partners, is interested in constructing a hibiscus-shaped island there.

E&O Prop has told BT that it is being courted by several Middle Eastern partners as well as regional ones for joint venture possibilities in both phases of Sri Tanjung Pinang. Its managing director Terry Tham has said that he is amenable to selling part of the company but wants a good price.

Middle Eastern private equity groups were also in a consortium that snapped up Berjaya Land’s KL Plaza for RM470 million. And they have invested RM400 million in the CIMB Mapletree Real Estate Fund.

Recently KFH, with local real estate investor Prestige Scale, agreed to pay RM557 million for the yet-to-be-built Glomac-Al Batha 40-storey office block in Kuala Lumpur. The price has set a RM1,120 per square foot benchmark for office space.

In Kuala Lumpur, KFH already owns part of the RM1.3 billion Pavillion KL and one of the two office tower blocks. It also has a small stake in SunCity’s Sunway South Quay project.

By JP Morgan’s estimates, a third of high-end purchases in Malaysia - mainly around the Kuala Lumpur city centre - are by foreigners, with a perceptible rise in Middle Eastern buyers.